Sunday, July 7, 2013

Social Security Stupidity from MoneyWatch

Suppose you wanted to take a couple of months off relying on those funds you accumulated in our savings account? Can you bank tell you that your can’t pay your current bills using the funds in your savings account? Jonelle Marte must think this is right:

“Long-term deficit? We can hardly afford our bills today. … In 2010, the Social Security Administration began collecting less revenue in taxes than it needs to cover benefit payments, forcing the agency to tap its $2.7 trillion trust fund sooner than some had expected. It was the first time since 1983 that expenditures had exceeded noninterest income

With this beginning, you might wonder whether it is worth your time to read the rest of the post. Save your time and don’t bother. I hope Jonelle has saved up funds in a bank that is reasonable as this post was so incredibly dumb – one has to wonder how long she’ll keep her current job. Or am I overestimating the standards at MoneyWatch?

So do you think tapping the trust fund has no budget consequences? It certainly does. When expenses exceed non interest income, general revenues must be used (the same way we pay for battleships), increasing the deficit and the debt held by the public.From a paper entitled "Frequently Asked Questions About the Social Security Trust Funds," published by the official website of the U.S. Social Security Administration, last reviewed or modified 5-31-13:http://www.ssa.gov/OACT/ProgData/fund/FAQ.html#a0=6What happens to the taxes that go into the trust funds?Tax income is deposited on a daily basis and is invested in 'special-issue' securities. The cash exchanged for the securities goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund.""Why do some people criticize the special-issue' securities held by the trust funds as worthless IOUs?Money flowing into the trust funds is invested in U.S. Government securities. Because the government spends this borrowed cash, some people see the trust fund assets as an accumulation of securities that the government wil be unable to make good on in the future."Money flowing into the trust funds is not invested in Government securities. As stated earlier, the cash exchanged for the securities goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund."So, how can the cash be in 2 places at the same time - in the Treasury's general fiund, which was spent, and in the trust fund?The answer is that the cash is not in 2 places at the same time. And, it will take cash, in the form of general revenues from the Treasury, to redeem the Treasuries when expenses exceed non-interest income. This doesn't make the IOUs worthless. It does mean that the IOUs are not pre-funded, and must be funded as any other general expense, like battleships.Don Levit

Don, don't ever change. We should call you the 'Little Levit Who Could'

Look it is just not true that "Money flowing into the Trust Funds is not invested in Government securities". Unles you simply redefine 'invested' and/or 'Government securities' in ways that build your specific conclusions into the definitional premises.

And I guess that is your prerogative, you can be the Humpty Dumpty of Social Security, Mr. "Words mean what I want them to, nothing more or nothing less" if you like. But note this:

Humpty Dumpty was the embodiment of amour propre, his self-satisfaction so self convincing. But he was and remains a figure of fun to all readers past and present.

Don the Chinese hold around a billion in negotiable Government bonds. The money used to purchase those bonds is widely understood to have financed our deficit spending. That is the money is sitting in two places.

You have never successfully explained why Special Issues are in any way different except by appealing to the word "unmarketable" in relation to the latter. Which once again requires building your conclusions into your definitional premises totally in the face of current law and current and historical practice.

"All the Kings Horses and all the Kings Men Couldn't put Humpty Don-ty Back Again"

Don you for year's have simply started from 'Phony IOU' and tried to work your way back. Those who can be convinced by your argument around these parts (and at AB and BTP) have been. Do you think you will magically break down those who remain unconvinced by your never varying argument?

Bruce:Our deficit spending being financed by the Chinese, does mean that the money is in 2 places. However, there is a third door called liability, known as debt held by the public.As my wise, successful grandfather stated: "What you owe, you owe. What you own, you may not own." He took his liabilities seriously, just like it is stated in the Psalms: Borrowing from another is like borrowing from God.I never said the IOUs are phony. They are real, for liabilities are real, even more real than assets, according to my grandfather. I simply stated that to make good on those liabilities requires general revenues from the Treasury, an immediate expense, increasing the deficit, and the debt held by the public. The only difference betweeen the SS trust fund and a calculator, is that the trust fund has numbers that are "promises" to repay.Don Levit

The only difference between the GF financed by the Chinese in purchasing treasuries and the GF financed by Social Securities excess funds is . . . wait a minute there is none. Both must be paid back. If you dod not want SS excess revenues to fund the GF, then return coporate tax revenues to what they were previously and the household income tax on the upper 3% of the population to what it was. And then, look at the other tax breaks given in 2001/2003 to this rarified group.

BruceI'm beginning to think that you invented Don Levit to act as the comedic foil and to whose persistently ignorant comments you can reply with a repetition of the facts of the Social Security finance process. Otherwise I'd have to conclude that Don is simply a persistent troll who beats the same dumb drum over and over again for the sake of serenading himself. Fess up. Is Don an alter ego?

Recently Nicki and I were invited to attend a program on Social Security put on by the Deerfield, Illinois office of Ameriprise Financial. My dear friend Stuart Pearl is one of their top representatives, so we’re fortunate to be invited to these events. As we were driving over Nicki told me that she was curious to see if I’d find out anything about Social Security that I didn’t already know, because she knows I’ve studied Social Security backwards, forwards, and sideways. So much so that many of our friends call me with their questions when they want to know something about the subject.

During the course of the program I did discover something about Social Security that I hadn’t known, which astounded me. I’m going to tell you what that is, but before I do, let me give you some statistics:

Approximately 74% of people take Social Security before their Full Retirement Age (FRA), which for people born between 1943 and 1954 is 66. Approximately 66% take Social Security at 62 when they first become eligible. Their benefit is reduced by 25% if they take it at 62, 20% at 63, 13.33% at 64, and 6.67% at 65. The numbers, for example, for someone with a FRA benefit at 66 of $1,000 would have his/her monthly benefit reduced for life to:

An individual gets extra credit—called delayed retirement credits—by waiting to take Social Security after FRA. For someone born between 1943 and 1954, the Social Security benefit is increased by 8% per year between 66 (FRA) and 70. The numbers, for example, for someone with a FRA benefit of $1,000 would have his/her monthly benefit increased for life to:

There are a lot more statistics I could toss into this blog, but I’ll stop here, although I want to urge you to study the subject, learn all you can. The importance of Social Security as part of your retirement program is huge. It does not receive the proper attention it should, which, over a retirement-lifetime, winds up costing people sums that would take one’s breath away. Also, for you young people, don’t buy into the myth that Social Security won’t be there for you; trust me, it will. It’s going to have to be adjusted, tweaked with, but it’ll be there.

So, what did I learn that astounded me? The woman who conducted the program asked this question: What is the main reason most people take Social Security at 62? The answer: Because they can. That’s it, folks. Not because they’ve researched, run the numbers, and proven to themselves that taking it at 62 is the numerical right thing to do, uh-uh. No, it’s just because it’s there and available, and they can’t resist taking it now. No thoughts of delayed gratification to do what is in their long-term best interest; just give me the cash now!

Now, let me say this: If you need the money at 62, or anytime before your FRA, fine, take the money; but if you don’t “need” it, if you can get by without it, in most cases it will behoove you to wait as long as you can to file for the benefit. Do some research. Run the numbers. Think about your spouse and what you want her/his life to be like when you’re gone. Make an informed decision that is in your, your spouse’s, long-term best interest.